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What just happened?
There are decades where nothing happens; and there are weeks where decades happen. So it has seemed all year, but perhaps never more agonizingly than in the past few days, which one analyst described, in a call with MarketWatch, as “watching paint dry on MSNBC.”
Under the market surface, however, things were jumping. Early in the week, materials ETFs took a step higher, presumably on the assumption that the results of the election would stoke a lot of economic activity. On Election Day, presumably on the assumption that the U.S. had moved one step closer to another fiscal-aid package, retail ETFs popped.
And ever since Election Night, the market has been all over the place, and a bit hard to pin down. Clean energy was out of favor, but Obamacare looked like it would live another day so health insurers caught a bid.
By the time you read this, the narrative — and the market tone — may have shifted again. Thanks for reading, and we’ll try to keep you up to date.
There’s gold in them thar funds
In a year that saw the price of an ounce of gold GC00, +2.73% skyrocket to its highest on record, it’s worth taking note of the role that ETFs play in demand for the precious metal.
Research shop DataTrek recently published a note about that trend. “For the first time ever, in 2020 ETFs have replaced jewelry as the largest source of global gold demand,” wrote co-founder Nicholas Colas.
Jewelry demand is tepid because of the pandemic and recession, of course. But another big player in the market for gold is central banks. In the third quarter, Colas wrote, citing World Gold Council data, central banks were net sellers of gold for the first time in a decade.
“That likely makes ETF/investment demand the swing factor for gold prices over the next 12-28 months,” he added.
The chart below is taken from Colas’s note. He took a World Gold Council chart and highlighted, in dark purple, ETF demand for the precious metal.
Globally, gold ETF global assets under management were at $235.4 billion at the end of the third quarter, according to the World Gold Council.
One of the pioneers to put this hard asset in ETFs, VanEck, in August made a splash by forecasting the price of an ounce of gold would rise to $3,400, about 76% upside from here.
Is there an ETF for that?
Medical marijuana leaf close up
iStockphoto
Marijuana ETFs have had a bit of a Rocky Road — pardon the pun, we know the COVID-15 is all too real — since Election Day. Most were down sharply on Wednesday, in a surprise to investors who may have expected that legalization measures in several states would make the funds more attractive.
Todd Rosenbluth, head of ETF and mutual fund research for CFRA, notes that cannabis investing is still an emerging market of sorts: there’s a thin market of securities for funds to select from, and since regulation is spotty, so too are fund flows, performance and liquidity.
But that means that demand for ETFs holding those securities will have a much greater impact on them — a “circular benefit,” in Rosenbluth’s words, — than buying a megacap stock fund that holds behemoths like Amazon AMZN, +3.09% or Microsoft, MSFT, +2.83% say. Meanwhile, more legal acceptance is likely to drive rosier sentiment toward the product, and vice versa.
Could cannabis ETFs become the next darling of the Robinhood trader set?
“Thematic ETFs are well-suited for retail investors because it’s just that investor deciding they’re comfortable with it and agreeing with the theme,” Rosenbluth told MarketWatch. “It’s a story that a younger demographic is likely to be more accepting of. And we’re increasingly seeing self-directed investors who don’t always go where the performance has been.”
Among the ETFs in the space, a few are notable. The AdvisorShares Pure Cannabis ETF YOLO, +7.03% is up 7.5% in the year to date, compared to the 39% decline for the industry’s biggest fund, the ETFMG Alternative Harvest ETF MJ, +7.92% and a 35% fall for the Cannabis ETF THCX, +9.48%. A newer entrant, the AdvisorShares Pure US Cannabis ETF MSOS, +5.55% may be seen by some investors as a purer play on the recent legislative changes, since its holdings are all U.S.-based, rather than coming mostly from Canada, as most earlier funds do.
Weekly rap
| Top 5 gainers of the past week | |
| SPDR S&P Regional Banking ETF KRE, +4.70% | 10.1% |
| First Trust Nasdaq Bank ETF FTXO, +4.31% | 9.8% |
| iShares U.S. Regional Banks ETF IAT, +4.39% | 9.7% |
| AdvisorShares Pure US Cannabis ETF MSOS, +5.55% | 9.3% |
| SPDR S&P Bank ETF KBE, +3.83% | 9.2% |
| Source: FactSet, through close of trading Wednesday, November 4, excluding ETNs and leveraged products | |
| Top 5 losers of the past week | |
| iShares 25+ Year Treasury STRIPS Bond ETF GOVZ, +3.20% | -2.7% |
| TrueShares Technology, AI & Deep Learning ETF LRNZ, +2.14% | -2.6% |
| Vanguard Extended Duration Treasury ETF EDV, +0.03% | -2.5% |
| PIMXO 25+ Year Zero Coupon US Treasury Index ETF ZROZ, -0.07% | -2.5% |
| WisdomTree Cloud Computing Fund WCLD, +2.57% | -2.4% |
| Source: FactSet, through close of trading Wednesday, November 4, excluding ETNs and leveraged products | |
| Top 5 biggest inflows of the past week | |
| Vanguard S&P 500 ETF VOO, +2.04% | $1.24 billion |
| iShares Core S&P 500 ETF IVV, +2.08% | $878.7 million |
| iShares Russell 2000 ETF IWM, +2.71% | $743.7 million |
| Technology Select Sector SPDR Fund XLK, +2.74% | $544.1 million |
| Vanguard Total Stock Market ETF VTI, +2.09% | $481.7 million |
| Source: FactSet, through close of trading Wednesday, November 4, excluding ETNs and leveraged products | |
Visual of the week
On Wednesday, the S&P 500 SPX, +2.02% charted its largest ever gain for the day after a presidential election, closing up 2.2%, as did the Nasdaq Composite COMP, +2.36%, which added 3.9% for the day. The Dow Jones Industrial Average DJIA, +1.81% rose 1.3%, just missing the 1.4% gain it charted the day after Election Day 2016, according to Dow Jones Market Data.
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